"Buying a Home Was Already Hard... Now Mortgage Rates Hit Highest Level in Two Years"

The average interest rate on mortgage loans handled by banks has risen to its highest level in two years. This marks the fourth consecutive month of increases, driven by rising market rates, including bank bonds that serve as benchmark rates. In particular, a sharp increase in the five-year bank bond rate has led to a significant decline in the share of fixed-rate mortgages.

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According to the "Weighted Average Interest Rates of Financial Institutions for January 2026," released by the Bank of Korea on February 27, the interest rate on new mortgage loans at deposit banks last month stood at 4.29% per annum, up 0.06 percentage points from the previous month. This is the highest level in two years since January 2024, when the rate was 4.30%.

The mortgage loan rate, which climbed to 4.27% in January last year, fluctuated between February and July, remained flat in August and September, and has risen for four consecutive months since October (3.98%). Over the past four months, the rate has increased by 0.31 percentage points.

Lee Hye-young, head of the Financial Statistics Team at Economic Statistics Department 1 of the Bank of Korea, explained, "This is due to a 0.07 percentage point increase in the five-year bank bond rate, which serves as the benchmark rate, during January." Specifically, the fixed-rate mortgage rose by 0.04 percentage points to 4.26%, while the variable-rate mortgage increased by 0.08 percentage points to 4.40% compared to the previous month.

The interest rate on jeonse (lump-sum lease) loans rose by 0.07 percentage points from the previous month to 4.06% per annum. In contrast, the interest rate on general credit loans fell by 0.32 percentage points to 5.55% per annum over the same period. This is due to a decline in short-term bank bond rates, which serve as the benchmark, as well as a decrease in the share of mid- and low-credit borrowers at some banks.

Including these categories, the average household loan rate increased by 0.15 percentage points from the previous month to 4.5% per annum. This marks the fourth consecutive monthly increase since October last year, when the rate was 4.24%.

The proportion of fixed-rate loans within household loans fell by 1.9 percentage points from the previous month to 47%. Notably, the share of fixed-rate mortgages dropped by 11 percentage points in a single month, from 86.6% to 75.6%. Lee commented, "As the five-year bank bond rate, which affects fixed-rate mortgages, rises, fixed-rate mortgages have become more expensive than variable-rate products, leading some demand to shift toward variable rates."

There is a possibility that lending rates will continue to rise in the future. Lee said, "Interest rates are heavily influenced by market rates, and as of the 23rd of February, there has been a slight uptick. There is a possibility that rates may continue to rise going forward."

Corporate loan rates fell by 0.01 percentage points from the previous month to 4.15% per annum, marking the first decline in three months. Due to the base effect from lower policy loan rates last month, the interest rate for large corporations increased by 0.01 percentage points to 4.09% per annum, but the rate for small and medium-sized enterprises (4.21%) declined by 0.03 percentage points.

The average interest rate on new time deposits and other savings deposits fell by 0.12 percentage points from the previous month to 2.78% per annum, as products such as time deposits decreased. This marks the first decline in five months since September last year.

Breaking it down further, the pure savings deposit rate dropped by 0.12 percentage points to 2.77% per annum. The market-type financial products rate, led by certificates of deposit (CDs) and financial bonds, decreased by 0.13 percentage points to 2.82% per annum. Lee explained, "This is due to a decline in short-term market rates in January," adding, "There was also a base effect from some banks raising rates in December last year to manage their Liquidity Coverage Ratio (LCR)."

The loan-deposit interest rate spread (based on new business) widened by 0.17 percentage points from the previous month to 1.46 percentage points. This is the first increase in five months since September last year. Based on outstanding balances, the loan-deposit spread widened by 0.01 percentage points to 2.24 percentage points.

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Among non-bank financial institutions, the interest rates on one-year term deposits increased across the board, except for savings banks, which saw a 0.02 percentage point decrease. Credit unions rose by 0.04 percentage points, mutual finance institutions by 0.06 percentage points, and community credit cooperatives by 0.07 percentage points. For lending rates (general loans), all categories saw increases except mutual finance institutions, which fell by 0.01 percentage points. Credit unions increased by 0.06 percentage points, while savings banks and community credit cooperatives rose by 0.22 percentage points and 0.15 percentage points, respectively.

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